Which is worse: regulation or deregulation?
By Paul Craig Roberts
Online Journal Guest Writer
Jan 31, 2008, 01:06
preach the morality of the market, and socialists preach the morality of the
state. Those convinced of the market's morality want deregulation; those
convinced of the state's morality want regulation.
In truth, neither seems to work.
Consider for example the rules against collusion. The
political left imposed this regulatory rule in order to prevent monopoly
behavior by companies. One consequence has been that, unable to collude, firms
are slaves to their bottom lines. In order to compete successfully in the
competitive new world of globalism, firms have curtailed pensions and health
insurance for their employees.
Or consider the regulation of new drugs, which drives up
costs and delays remedies without, apparently, doing much to improve safety.
Or the fleet mileage standards that regulation imposes on
car makers. These regulations destroyed the family station wagon. Families
needing carrying capacity turned to vans and to panel trucks. Car makers saw a
new market and invented the SUV, which as a "light truck" was exempt
from the fleet milage regulations. The effort to impose fuel economy resulted
in cars being replaced by overweight fuel-guzzling SUVs.
On the other hand, consider the current troubles resulting
from banking and financial deregulation. The losses from this one crisis
greatly exceed any gains from deregulation.
Or consider the plight of the deregulated airlines and
deterioration in the quality of air service. Or the higher costs of telephone
service and the loss of a blue chip stock for widows and retirement funds that
resulted from breaking up AT&T. Or the scandals and uncertainties from
utility deregulation which permits nonenergy producers like Enron to contract
to deliver electric power.
Economists claim that deregulation results in lower prices.
Cheap advanced fare airline ticket prices are cited as evidence. What these
economists mean is that the fares without stopovers are cheap to people who can
plan their trips in advance. Other passengers subsidize these advanced fares by
paying four times as much. Moreover, deregulation has created bottom-line
competition that has lowered service, removed meals, and results in periodic
bankruptcy, thus forcing the airlines' creditors to pay for the low fares.
Pilots, flight attendants, and aircraft maintenance crews subsidize the lower
fares with reductions in salaries and pension benefits. Are bankruptcies and
mergers leading the industry toward one carrier and the re-emergence of
Consider the fallout from trucking deregulation. As in the
case of the airlines, the claim was that more communities would be served and
costs would decline. But which costs? Deregulation made every minute a
bottom-line item. Trucks became bigger, heavier, and travel at higher speeds.
Highway safety suffers, and highway maintenance costs rise. The courtesy of
truck drivers declined. When trucking was regulated, truckers would stop to
help people whose cars had broken down. Today that would throw off the schedule
and threaten the bottom-line.
Economists dismiss costs that aren't included in price. For
them the cost that matters is the price paid by consumers. The truck that gets
there faster delivers cheaper to the consumer. The myriad ways in which people
pay the price of deregulation are not part of the price paid at the checkout
Economists also say that offshoring lowers Wal-Mart prices,
thus benefiting the consumer. They don't say that by moving jobs abroad
offshoring reduces the job opportunities and lifetime earnings of the US labor
force, or that it wrecks the finances of the laid-off US workers and destroys
the tax base of their local communities. None of these costs of offshoring
enter into the price of the offshored goods that Americans purchase.
Privatization vs. socialization is another dimension of the
conflict. Those who distrust the power of private ownership put faith in public
ownership, and those who distrust the power of the state find freedom to be
imperiled in the absence of private ownership. Twentieth century experience
established that public ownership is economically inefficient without producing
offsetting gains in public welfare. Those in charge of nationalized firms live
well both at the expense of taxpayers and consumers.
Nevertheless, privatization can be pushed too far, and it
has. As a result of the upfront cost of building prisons and their high
operating costs when in government hands, prisons are being privatized and have
become profit-making ventures. Governments avoid the construction costs and
contract for incarceration services. Allegedly, the greater efficiency of the
private operation lowers the cost.
Private prisons, however, require a constant stream of
prisoners. They cannot afford to have vacant cells. If incarceration rates
fell, profits would disappear and bankruptcy would descend upon the owners.
Thus, privatized prisons create a demand for criminals and, as a result, might
actually raise the total cost of incarceration.
The US -- the "land of liberty" -- has the largest
prison population in the world. With 5 percent of the world's population, the
US has 25 percent of the prison population. The US has 1.3 million more people
in prison than crime-ridden Russia, and 700,000 more prisoners than
authoritarian China, which has a population four times larger.
In the US, the number and kind of crimes have exploded.
Prisons are full of drug users, and the US now has "hate crimes" such
as the use of constitutionally protected free speech against "protected
minorities." It is in the self-interest of prison investors to agitate for
yet more criminalization of civil liberties and ordinary human behavior.
The case for deregulation is as ideological as the case for
regulation. There is no open-and-shut case for either approach. Such issues
should be decided on their merits, but usually are decided by the reigning
ideology of an epoch or by powerful interest groups.
The Bush regime has deregulated the government in the sense
that the regime has removed constraints that the Founders put on executive
power. This was done in the name of the "war on terror."
Simultaneously, Bush has increased the regulation of our travel and
communication, spying on our Internet use and specifying to the ounce the
quantities of toothpaste and shampoo with which Americans can board commercial
Crises destroy liberty. Lincoln used the crisis of states
withdrawing from the union to destroy states' rights, an essential preservative
of liberty in the minds of the Founders. Roosevelt used the Great Depression to
destroy the legislative power of Congress by having that power delegated to
federal agencies. Bush used 9/11 to assault the civil liberties that protect
Americans from a police state.
Perhaps we have now reached a point where both libertarians
and left-wingers can agree that the US government desperately needs to be
reregulated and again held accountable to the people.
Craig Roberts [email him] was Assistant Secretary of the Treasury in the
Reagan Administration. He is the author of Supply-Side
Revolution : An Insider's Account of Policymaking in Washington; Alienation
and the Soviet Economy and Meltdown:
Inside the Soviet Economy, and is the
co-author with Lawrence M. Stratton of The
Tyranny of Good Intentions : How Prosecutors and Bureaucrats Are Trampling the
Constitution in the Name of Justice. Click here for Peter
Brimelow�s Forbes Magazine interview with Roberts about the recent epidemic of
Copyright © 1998-2007 Online Journal
Email Online Journal Editor